Landslide European Parliament vote hints at stronger corporate liability rules on human rights and environment

The European Parliament’s Legal Affairs Committee (JURI) has approved a draft legislative initiative that advocates for corporate mandatory human rights and environmental due diligence, a project that has been contested by Brussels-based organisations BusinessEurope and EuropeanIssuers.

JURI’s MEPs overwhelmingly voted for the report (21 against 1) proposing rules for companies to prevent adverse impacts on human rights, the environment and good governance in their value chain. A list of such impacts would be drawn up in line with the Taxonomy Regulation, according to the report. 

Effectively, the project would set out in EU law the UN Guiding Principles on Business and Human Rights (aka ‘Ruggie Principles’) and the OECD Guidelines for Multinational Enterprises.

In addition, there are already due diligence laws in the EU in place covering sectors such as conflict minerals or timber and forestry. The current project would expand the principles of those EU regulations to all business activities. At country level, there are already similar laws in France (duty of vigilance law) and the Netherlands (focused on child labour due diligence).

Johannes Blankenbach, EU/Western Europe Researcher & Representative at the Business & Human Rights Resource Centre, told RI that responsible companies and investors have nothing to fear and much to gain from such legislation.

“For the law to be effective it needs strong accountability mechanisms, most notably corporate liability, which encourages effective preventative action and ensures access to remedy," he said. 

The Parliament’s report is named “corporate due diligence and corporate accountability” and still needs to be approved by the plenary in early March. It is the result of the Parliament’s right to initiate legislation. If passed, the European Commission should not disregard it and trigger law proposals.  

Last month a related report on sustainable corporate governance, although broader in its scope and non-binding for the Commission, faced an unexpectedly tight plenary vote despite having garnered consensus at JURI’s committee level.

Didier Reynders, Commissioner for Justice and Consumers, hinted last year the Commission has an appetite for mandatory due diligence, announcing the promotion of legislation by mid-2021.

In the grand scheme of things, it is a key part of the sustainable corporate governance framework envisaged by the Commission's 2018 Action Plan for Financing Sustainable Growth. A consultation on this is still ongoing until the first week of February.

Richard Gardiner, Senior Campaigner at Global Witness, said the NGO will keep following the process closely to ensure that MEPs ratify the report and that the Commission lives up to its commitment.

“There is clear consensus for legislation which mandates due diligence across value chains, holds companies liable for harms they cause, and ensures that communities are consulted to prevent human rights and environmental abuse from happening in the first place,” he said. 

BusinessEurope and EuropeanIssuers have expressed objections to this legislative initiative in letters to JURI MEPs and to Commissioner Raynders. They have also cast doubts over two studies EU legislators commissioned from accountancy firm EY, which found that companies support the ongoing regulatory intervention because it provides legal certainty and a level playing field.

Individually, at least over 30 large corporations have so far supported the work of the EU institutions.

Coinciding with the vote yesterday, 12 Scandinavian companies, members of the Nordic Business Network for Human Rights, backed “the EU efforts to establish mandatory human rights due diligence” and its alignment with the Ruggie Principles.

The companies are: Arla, BioMar, Danfoss, Inter IKEA Group, LEGO Group, Lundbeck, Neste, Norsk Hydro, Novo Nordisk, Statkraft, Vestas Wind Systems and Yara.

Earlier in September, similar support came from Adidas, Armedangels, H&M Group, Marshalls, Paulig, Tchibo, Tony’s Chocolonely, Aldi, Inditex, Mondelez, Ritter Sport, Telia, Unilever, Abn-Amro, Ericsson, Mars, Nestle (support reiterated yesterday), Symrise, The Body Shop and Vaude.

In addition, other business associations are supportive of the EU project, like the European Brands Association, AIM and Amfori.